Friday, December 15, 2017

Occupational Licensing Under Fire

Let's be clear: an "occupational license" means that if you don't have the license, you don't have government permission to do the job. If you do the job without such a license, you can be legally punished, even put in jail.

There are a number of alternative of methods that seek to reassure buyers about quality that don't involve requiring an occupational licensing. For example, many occupations have a certification exam (sometimes done by the government, sometimes by third parties), but anyone who wishes to hire an uncertified worker is free to do so. Providers can become bonded or insured voluntarily, or states can impose requirements for bonding or insurance. States can require providers to register with a legal name and address. States can provide inspections, as is done with restaurants, for example, and on many building projects. Thus, occupational licensing is not just a method of seeking to ensure quality, but an especially restrictive method. The Institute for Justice digs into these issues in the second edition of its report "License to Work: A National Study of Burdens from Occupational Licensing," written by Dick M. Carpenter II, Lisa Knepper, Kyle Sweetland and Jennifer McDonald (November 2017). They write (footnotes omitted):
"The share of American workers needing a license to work has climbed steadily in recent decades, from 1 in  20 workers in the 1950s to roughly 1 in 4 today ... Research suggests this growth is not primarily due to more workers leaving the farm and the factory for traditionally licensed fields like medicine and law. Instead, the main driver is new laws expanding licensing into previously unlicensed occupations." 
The IJ report looks at occupational licensing rules across states in a sample if 102 lower- and middle-wage occupations; that is, it doesn't look at occupational licensing in higher wage jobs like doctors, lawyers, teachers. Of these jobs that require occupational licenses, "[s]ome, such as family child care home operator, public school preschool teacher and non-instructional teacher assistant, cater to the needs of children. Others, like dental assistant, dietetic technician, optician and psychiatric worker, come from the health care sector. Still others represent the service sector and the construction and transportation trades. These include barber, bartender, cosmetologist, massage therapist, manicurist and skin care specialist; various contractor designations; and bus, taxi and truck driver. ... The list of 102 occupations includes some that are commonly licensed—and commonly recognized as such—including barber and cosmetologist, two ubiquitously and long-licensed occupations. Also on the list are many occupations that are generally familiar to the public, though the fact that they are licensed may not be. Such occupations include florist, funeral attendant, home entertainment installer, locksmith and upholsterer. Finally, there are some occupations on the list that are, along with their licenses, highly obscure: milk sampler, conveyor operator and dairy equipment still machine setter, for example."

When you start looking at the state occupational licensing laws across these kinds of occupations, all sorts of inconsistency and strangeness becomes apparent.

For example, Louisiana requires 500 hours of training get an occupational license to braid hair, and in 2012 had 32 hair-braiders in the state. Neighboring Mississippi has zero hours of required training, although it does require hair-braiders to register their business with the state, and had over 1,200 hair-braiders.

As another example, Maryland doesn't license auctioneers, but the city of Baltimore does. "The city of Baltimore requires licenses or registrations for at least 26 occupations in addition to the 59 low- and middle-income occupations licensed by the state of Maryland. For example, Maryland is one of the 21 states that do not license auctioneers, but auctioneers in Baltimore must get a license from the city to work. And that license is relatively onerous, requiring $1,600 in licensing fees and either a one-year apprenticeship or an expensive training course."

"EMTs hold lives in their hands, yet 73 other occupations have greater average licensure burdens. This includes barbers and cosmetologists, home entertainment installers, interior designers, log scalers, manicurists and numerous contractor designations. For perspective, while the average cosmetologist must complete 386 days of training, the average EMT must complete a mere 34. Even the average tree trimmer must complete more than 16 times the amount of education and experience as the average EMT."

Locksmiths require a state license in 14 states. Opticians require a state license in 22 states. It seems unlikely that locks or eyes differ substantially across states. Thus, defenders of such licenses need to justify why they don't seem necessary in other states. ""On average, the 102 occupations studied here are licensed by just 27 states. Only 23 occupations are licensed by 40 states or more. Such inconsistency is suspect. The vast majority of these occupations are practiced in at least one state—and typically many more than one—without need of permission from the state and evidently without widespread harm."

The common argument for occupational licenses is that they are needed for purposes of quality or safety. But for the kinds of jobs discussed in the IJ study, evidence doesn't back up that claim, "Studies of licensing and service quality have examined a wide range of occupations, including florists, tour guides, hair braiders and cosmetologists, without finding positive effects. Even research
on occupations where health risks may be more pronounced, such as dental hygienists, nurse practitioners and opticians, has found that licensing restrictions raise the cost of services without
improving quality.Put differently, research suggests that consumers are paying more without getting better results."

Several recent academic studies have offered additional evidence. For example, the Federal Reserve Bank of Minneapolis recent published "Is Occupational Licensing a Barrier to Interstate Migration?" by Janna E. Johnson and Morris M. Kleiner ((Staff Report 561, December 6, 2017). From the abstract:
"We analyze the interstate migration of 22 licensed occupations. Using an empirical strategy that controls for unobservable characteristics that drive long-distance moves, we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration. The size of this effect varies across occupations and appears to be tied to the state specificity of licensing requirements. We also provide evidence that the adoption of reciprocity agreements, which lower re-licensure costs, increases the interstate migration rate of lawyers. Based on our results, we estimate that the rise in occupational licensing can explain part of the documented decline in interstate migration and job transitions in the United States."
In another recent study, Brandon Pizzola and Alexander Tabarrok discuss "The Undertaker's License"
(Cato Institute Research Briefs in Economic Policy #91, December 2017). They focus on funeral directors in Colorado. It turns out that Colorado used to license funeral directors up until 1983, but then repealed the licensing rule. Thus, they can study Colorado's experience as a sort of natural experiment. They find that up to 1983, wages for funeral directors in Colorado were similar to the rest of the country, but by about 1990, they were 11% below the national average--which is roughly where they have remained since. Moreover, other prices associated with funerals also fell in Colorado, which is consistent a belief that as the funeral business became more competitive, there were ways to hold down the other costs as well. There is no evidence that funerals are somehow worse or of lower quality in Colorado than in other states. the underlying economic research paper here is Brandon Pizzola and Alexander Tabarrok, “Occupational Licensing Causes a Wage Premium: Evidence from a Natural Experiment in Colorado’s Funeral Services Industry,” International Review of Law and Economics 50 (2017): 50–59.

The Institute for Justice and the Cato Institute are known for taking takes libertarian positions. Thus, in these partisan times, it seems worth noting that reform of occupational licensing is an issue with some bipartisan support.

For example, the Obama White House published a report in July 2015 called "Occupational Licensing: A Framework for Policymakers."  Here's a sample of the tone:
"When designed and implemented carefully, licensing can offer important health and safety protections to consumers, as well as benefits to workers. However, the current licensing regime in the United States also creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing." 
The Obama administration even provided a few million dollars of funding for a coalition of states to compare and reconsider their occupational licencing rules. In the highly Democratic state of California, an oversight agency called the Little Hoover Commission argued that California should be part of this process in its October 2016 report: "Jobs for Californians: Strategies toEase Occupational Licensing Barriers." The tone of this report is similar as well:
"One out of every five Californians must receive permission from the government to work. For millions of Californians, that means contending with the hurdles of becoming licensed. Sixty years ago the number needing licenses nationally was one in 20. What has changed? What once was a tool for consumer protection, particularly in the healing arts professions, is now a vehicle to promote a multitude of other goals. These include professionalism of occupations, standardization of services, a guarantee of quality and a means of limiting competition among practitioners, among others. Many of these goals, though usually well intentioned, have had a larger impact of preventing Californians from working, particularly harder-to-employ groups such as former offenders and those trained or educated outside of California, including veterans, military spouses and foreign-trained workers.

"In its study on occupational licensing, the Commission sought to learn whether the state properly balances consumer protection with ensuring that Californians have adequate access to jobs and services. It learned the state is not always maintaining this balance, as evidenced by discrepancies in requirements for jobs that pose similar risks to the consumer. Manicurists, for example, must complete at least 400 hours of education, which can cost thousands of dollars, and take a written and practical exam before becoming licensed. ... When government limits the supply of providers, the cost of services goes up. Those with limited means have a harder time accessing those services. Consequently, occupational licensing hurts those at the bottom of the economic ladder twice: first by imposing significant costs on them should they try to enter a licensed occupation and second by pricing the services provided by licensed professionals out of reach. The Commission found that over time, California has enacted a thicket of occupational regulation that desperately needs untangling in order to ease barriers to entering occupations and ensure services are available to consumers of all income levels."
In the Trump administration, the Federal Trade Commission has been  holding a series of roundtable conference to discuss the effects of occupational licensing, too. Often, the political wedge for dealing with occupational licensing issues seems to involve the plight of spouses in military families, who find that when they are transferred to a different state, they are unable to do their previous job without passing some additional costly and time-consuming occupational licensing test. But this issue is a lot broader than military families. With occupational licensing now covering one-fourth of all US jobs, it touches on the opportunities for jobs and upward mobility available to a very wide array of workers. When it seems important to take steps to assure quality of work, lots of other options are available, and occupational licensing should be used much more narrowly than it is.